Net Worth Statement - Part V

As promised, here is an example of a net worth statement. I modeled this after one that I found in an out-of-print book called The Fast Forward MBA in Financial Planning by Ed McCarthy.

              Assets                
Financial Assets                    
Cash                                     200
Checking                               3,000
Money Market Accounts                  7,000
Savings                                6,000
CDs                                    6,000
Payments Receivable                   10,000
Total Financial Assets               $32,200

Personal Assets                     
Clothing                               5,000
Furnishings                           15,000
Autos                                 30,000
Home                                 200,000
Other                                  1,100
Total Personal Assets               $251,100

Investments                         
Stocks                                25,000
Bonds                                      0
Mutual Funds                          35,000
Retirement Plans                     250,000
Life Insurance Cash Values                 0
Business Interests                    25,000
Real Estate                                0
Total Investments                   $335,000
Total Assets                        $618,300
           Liabilities              
Short-Term                          
Utilities                                500
Credit Cards                           3,000
Other                                  1,500
Total Short-Term Liabilities          $5,000
                                    
Long-Term                           
Auto Loans                            15,000
Student Loans                         30,000
Mortgage                             175,000
Other
Total Long-Term Liabilities         $220,000
Total Liabilities                   $225,000
NET WORTH*                          $393,300
*($618,300 - $225,000 = $393,300)

As you can see, it is a pretty straight-forward exercise. Notice that this couple's net worth is a positive $393,300. Had their liabilities been greater than their total assets of $618,300, they would have had a negative net worth.

Tomorrow's post will be about the cash flow statement. YIPPY!

Other posts in this series:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

Net Worth Statement - Part III

Net Worth Statement - Part IV

Interview with Jeremy Siegel, Author of The Future for Investors

I came across an interview with Jeremy Siegel on the Motley Fool radio program and thought I'd share it. You can listen to it here. In case you haven't heard about it yet, Jeremy Siegel's new book is a really good read and probably one of the best books for investors for 2005. I highly recommend it! Check it out for yourself: The Future for Investors

Net Worth Statement - Part IV

My last post finished up the assets side of the net worth statement. Now it is time to look at liabilities.
A liability is something you owe, either now or later. A liability takes away from your net worth.

Liabilities are usually classified as either short-term or long-term. Examples of short-term liabilities are:

• Credit card debt
• Utilities
• and any other debt that must be paid off in less than a year

Long-term debt is debt that is usually paid off in more than a year. These include items such as:

• Auto loans
• Student loans
• Home mortgage
• and any other large purchase

For the most part, the less debt you have, the better. However, there are times when debt is necessary. I don't know a whole lot of people who can pay cash for a home!

Next time I'll put this all together in a model net worth statement so that you can see how it all works together. Until next time, feel free to familiarize yourself with the other related posts:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II

Net Worth Statement - Part III

Model Portfolios

NOTICE: I will not be able to update the portfolios this weekend. The computer with the spreadsheet on it is being repaired. I will update the portfolios as soon as I can.

UPDATED MARCH 29, 2005 (Friday, March 25 closing prices)

Here are the final portfolios. Like I said in an earlier post, these are generic "model" portfolios.
I'm also working on a dollar-cost-averaging portfolio since a lot of my readers are in the accumulation phase.

ASSUMPTIONS: $1,000,000 on December 31,2004. I used December 31 because I have been following the portfolios that long. All dividends and income from the portfolio will be deposited into the cash account. Fees (my fee and the brokerage fee) will be deducted on a quarterly basis. The MOST the fee will be is 1.05% or .2625% per quarter. For a portfolio of this size, the total fee should be around .72% or .18% per quarter.

Here are the portfolios:

RETIREMENT

                  Percent    Current        YTD
                Allocation     Value    Performance
US Stocks            39.9%   $394,519        -1.00%
International        20.1%   $198,806        -0.59%
Bonds                39.6%   $391,660        -2.08%
Cash                  0.4%     $3,967       N/A
Totals              100.0%   $988,953        -1.10%

50+ PORTFOLIO - (For those getting ready for retirement)

                  Percent    Current        YTD
                Allocation     Value    Performance
Large Cap            18.6%   $185,509        -7.17%
Mid Cap              22.0%   $219,770        10.09%
Small Cap            19.6%   $196,082        -1.92%
International        19.9%   $198,656        -0.63%
Bonds                19.6%   $195,725        -0.63%
Cash                  0.2%     $2,443       N/A
Totals              100.0%   $998,186        -0.18%

Under 50 PORTFOLIO

                  Percent    Current        YTD
                Allocation     Value    Performance
Large Cap            18.6%   $185,509        -7.17%
Mid Cap              22.0%   $219,770        10.09%
Small Cap            19.6%   $196,082        -1.92%
International        39.7%   $397,311        -0.63%
Cash                  0.1%     $1,056       N/A
Totals              100.0%   $999,729        -0.03%

Student Loan Interest is on the Rise

Aleksandra Todorova over at SmartMoney.com wrote an excellent article entitled Student Loans Get More Expensive.

In the article she does an excellent job explaining how the interest rate on student loans in calculated and why it is expected to rise this summer by as much as 1.5 to 2%. Here's an excerpt:

"Interest rates for Stafford and PLUS loans are reset each July 1, based on the 91-day T-Bill rate determined at its last auction in May. Last year, the T-bill hit a rock-bottom 1.07%. Stafford loans for students in repayment were at 3.37%. After a series of Federal Reserve interest rate hikes since then, however, the T-bill is expected to approach 3% in May. At its latest auction in March, it traded at 2.84%. The Stafford loan rate, were it to be set today, would be 5.14%."

The bottom line to this: if you have student loans that you want to consolidate, you better do it now.

Jeremy Siegel on the Future for Investors

I saw a link to this story on the Thinking Bull website and thought I'd post a link to it also. It is an article about Jeremy Siegel's newest book The Future for Investors. It is a must read.

Related posts:

The Future for Investors - Part 2

Net Worth Statement - Part III

This is the third installment on the net worth statement.

I received a comment regarding yesterday's post. The question was about what is considered an asset. An asset is anything you own. For personal financial planning purposes, I like to use three categories for dividing up assets:

Financial Assets - These are usually liquid assets (things that can be sold quickly and used for purchases). Assets that typically fit into this category are:

• Cash
• Checking Accounts
• Money Market Accounts
• Savings
• Certificates of Deposit (CDs)
• Payments Receivable

Personal Assets - Assets that are personal to you, which can include:

• Clothing
• Furnishings
• Autos
• Home (much debate about this one because a lot of people consider a home an investment)
• Other

Investments

• Stocks
• Bonds
• Mutual Funds
• Retirement Plans (401(k), IRAs, Annuities, Pension,...)
• Life Insurance Cash Values
• Business Interests
• Real Estate

It is also important to note that some assets depreciate (also known as "use" assets). This means that the asset becomes less and less valuable as time passes. Assets that are included in this catergory are:

• Autos
• Computers
• Clothing
• Household Appliances
• Children's Toys
• and any other asset that gets "used up."

One important thing to remember when valuing your assets is to make sure you use realistic values on your assets. This exercise won't do you any good if you are too optimistic in your valuations. The goal of this exercise is to find out what you are financially worth.

That's it for now. My next post will address liabilities.

Related Posts:

Financial Planning Basics - The Net Worth Statement

Net Worth Statement - Part II